SEC Charges Webull, Lightspeed, and Paulson Investment Over Deficient Suspicious Activity Reports
Broker-Dealers Face Combined $275,000 Penalty for SARs Violations
On November 22, 2024, the Securities and Exchange Commission (SEC) disclosed that three prominent broker-dealers—Webull Financial LLC, Lightspeed Financial Services Group LLC, and Paulson Investment Company, LLC—settled charges related to deficient suspicious activity reports (SARs). These violations occurred over a four-year span starting in 2018 and resulted in a combined penalty of $275,000.
What Are Suspicious Activity Reports (SARs)?
Suspicious Activity Reports (SARs) are crucial tools used by broker-dealers to identify and report transactions that may involve illegal activities or lack an apparent lawful purpose. Federal regulations require that SARs provide:
- A clear and concise description of the suspicious activity.
- Specific details explaining why the transaction is considered unusual or irregular.
These reports play a pivotal role in aiding law enforcement and regulatory agencies in combating financial crimes such as money laundering and fraud.
Why Deficient SARs Are Problematic
When SARs lack the necessary details, they undermine the ability of law enforcement and regulatory bodies to respond effectively to financial misconduct. Incomplete or vague filings can:
- Delay critical investigations.
- Reduce the effectiveness of financial market oversight.
- Enable illegal activities to continue undetected.
SEC officials stressed the importance of compliance, with Jason Burt, Director of the SEC’s Denver Regional Office, stating:
“Suspicious activity reports play a vital role in keeping our markets safe, and the failure of broker-dealers to include necessary information to explain suspicious transactions deprives law enforcement and regulatory agencies of valuable and timely intelligence, undermining the very purpose of the SARs.”
Details of SEC’s Findings
The SEC’s investigation revealed that Webull Financial LLC, Lightspeed Financial Services Group LLC, and Paulson Investment Company, LLC repeatedly submitted SARs that were incomplete or lacked essential details. These deficiencies persisted over a four-year period, highlighting systemic lapses in compliance with federal reporting standards.
Key Violations of Federal Law
The broker-dealers were found to have violated:
- Section 17(a) of the Securities Exchange Act of 1934
- Rule 17a-8 under the Exchange Act
These provisions require broker-dealers to maintain stringent standards when filing SARs, ensuring that reports are comprehensive and provide actionable intelligence.
Penalties Imposed on Broker-Dealers
As part of the settlement, the SEC imposed financial penalties on each firm:
- Webull Financial LLC (New York, N.Y.): $125,000 civil penalty.
- Lightspeed Financial Services Group LLC (Morristown, N.J.): $75,000 civil penalty.
- Paulson Investment Company, LLC (Lake Oswego, Ore.): $75,000 civil penalty.
In addition to monetary penalties, Webull Financial LLC and Paulson Investment Company, LLC agreed to conduct independent reviews of their anti-money laundering (AML) programs. These reviews will be carried out by compliance consultants to ensure adherence to regulatory requirements.
Steps Taken to Address Deficiencies
Cooperation and Remedial Actions
All three firms cooperated with the SEC during the investigation, demonstrating their commitment to improving compliance practices. Lightspeed Financial Services Group LLC, in particular, has already taken corrective measures to address deficiencies in its SAR processes.
Independent AML Program Reviews
Webull Financial LLC and Paulson Investment Company, LLC have committed to comprehensive reviews of their AML programs. These reviews aim to:
- Identify gaps in existing compliance procedures.
- Implement measures to prevent future SAR deficiencies.
Importance of Regulatory Compliance in Financial Markets
The SEC’s enforcement actions underscore the critical role of SARs in maintaining the integrity of financial markets. Broker-dealers are reminded that compliance with federal reporting standards is non-negotiable. Failing to provide detailed and accurate SARs:
- Weakens the financial system’s defenses against fraud and money laundering.
- Erodes trust in the regulatory framework.
The SEC’s decisive actions highlight the agency’s commitment to holding financial institutions accountable for their legal obligations.
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
